The Buyout Boom's Dark Side Spectrum Brands' plight could foreshadow what's ahead when the LBO high wears off

There has been a lot of lamenting in recent months over the debt that private equity firms have been piling on companies. And there's even more worry over what will happen to those businesses when the buyout boom ends. If the story of Atlanta-based Spectrum Brands Inc. (SPC ) is any indication, the fallout could be painful.

Pieced together over the years largely by prominent buyout firm Thomas H. Lee Partners, the conglomerate took advantage of the market's generous borrowing terms to fund an aggressive buying spree. But instead of transforming itself into a consumer brand powerhouse, Spectrum remains little more than a hodgepodge of middling brands, such as Rayovac batteries and Hot Shot insecticide. And serial dealmaking has left the company hobbled by a massive $2.5 billion debt load, one that is 10 times larger than Spectrum's value on the stock market.

Now the company has temporarily staved off creditors by refinancing its debt and putting one of its biggest divisions up for sale. In a last-ditch attempt to salvage their investment, the THL partners who sit on the board, along with the rest of the company's directors, have replaced Spectrum's longtime chief executive and other senior managers. Since March, 2005, the stock has dropped 90%, to 4.38. "This [investment] has been disappointing to us," says Scott M. Sperling, co-president of THL, the largest shareholder in Spectrum.

The destruction of capital and jobs at the company follows a history of wheeling and dealingby THL and by Spectrum's executives, handpicked by THLthat goes back more than a decade. It's a history that shows just how much damage leveraged buyout firms can inflict on companies as they dress them up to sell to the stock market.